The CBOE® VVIX^{SM} Index FAQ
1. What is the VVIX Index?
The CBOE VVIX Index (the VVIX) represents a volatility of volatility in the sense that it measures the expected volatility of the 30-day forward price of VIX. This forward price is the price of a hypothetical VIX® futures contract that expires in 30 days. The VVIX is not the same as the expected volatility of the VIX®, but the two are close because nearby VIX® futures track the VIX®.
2. How does CBOE calculate the VVIX?
The VVIX reflects the price of a portfolio of at-and out-of the money VIX® options. The method of calculation is the same as the method used to calculate the VIX® from SPX options. The first step is to find expected variances corresponding to different VIX® option expirations. The second step is to interpolate a 30-day expected variance. The last step is to take the square root of that number and to multiply it by 100 to express the VVIX in percent. The method used to calculate the VIX® is described in detail at http://www.cboe.com/VIX.
3. Does CBOE calculate a term structure of the VVIX?
CBOE calculates VVIX term structure values for all VIX® option expirations. The VVIX term structure value associated with a specific expiration, e.g. April 2012, measures the expected volatility of the price of April 2012 VIX® futures. The term structure of VVIX is usually downward sloping.
4. How often is the VVIX published?
The CBOE publishes the VVIX every 15 seconds and its term structure daily at the close.
5. What is a typical value of the VVIX?
From 2006 to 2012, the VVIX ranged from 60 to 145 around an average value of 86. That range is much higher than the range of VIX® and is typical of statistics of volatility of volatility. For example, over the same period the VIX® ranged from 10 to 81 around an average value of 24.
6. Does the VVIX revert to the mean like the VIX®?
Yes. The long-term historic mean is 86.
7. Is there a correlation between the VVIX and the VIX®?
Historically, there has been little correlation between the VVIX and the VIX® except at extreme values of the VIX®.
8. How can an investor use the VVIX?
The VVIX and its term structure can inform the VIX® trading community about
- the expected volatilities that drive the prices of VIX® options at different expirations.
- the expected nearby volatility of the VIX® itself.
- the fair values of VIX® futures.
- Investors can trade the portfolio of VIX® options used to calculate the VVIX or any point on its term structure to help capitalize on deviations between VIX® futures prices and their fair values.
- the degree of confidence the market has in its forecast of future values of the VIX®.
- the VVIX or a value on its term structure represents the price of a portfolio of VIX® options. Selling this "VVIX" portfolio on a consistent basis captures a volatility risk premium. An investor who deems the VVIX or a term structure value to be too high or too low at a particular date can sell or buy the underlying portfolio.